By Alethia Kasben
Gongwer?News Service
Adhesive boilerplate employment agreements that shorten a limitations period must be examined for reasonableness, the Supreme Court ruled Thursday in an opinion that overruled previous decisions.
In Rayford v. American House Roseville I, LLC (MSC Docket No. 163989) the court addressed whether an employer can contractually shorten the three-year statute of limitations applicable to civil rights claims to 180 days through a boilerplate employment agreement.
Justice Elizabeth Welch wrote the majority opinion, which was signed by Chief Justice Megan Cavanagh, Justice Kyra Harris Bolden, Justice Kimberly Thomas and Justice Richard Bernstein. Justice Brian Zahra dissented.
Although generally allowed, the agreement in this case was a non-negotiated boilerplate agreement, which the court said is an adhesion contract between an employer and an employee.
“We hold that an adhesive boilerplate employment agreement that shortens a limitations period must be examined for reasonableness,” the majority opinion said. “Additionally, these agreements are subject to traditional contract defenses, including unconscionability, and, as adhesion contracts, may be procedurally and substantively unconscionable.”
The majority overruled two previous Court of Appeals decisions in its decision: Clark v. Daimler Chrysler Corp. (2005), which extended a Supreme Court decision to employment agreements, and Timko v. Oakwood Custom Coating (2001), which held that a contractually shortened limitations period of 180 days in an employment agreement was not inherently unreasonable, reaching this result without conducting a particularized reasonableness analysis under Herweyer.
Those decisions being overruled means the Supreme Court precedent set forth in Camelot Excavating Co, Inc v. St Paul Fire & Marine Ins Co. (1981), and Herweyer v. Clark Hwy Servs, Inc. (1997), provides the correct framework for reviewing contractually shortened limitations periods contained in boilerplate employment agreements, the court ruled.
Camelot held that a court must review contractually shortened limitations periods in the nonadhesive, nonemployment context for reasonableness. Herweyer then extended that analysis to shortened limitations periods in employment agreements and implied that a period of six months was not reasonable, noting the inherently inequitable difference in bargaining power between an employer and employee and calling for “close judicial scrutiny” in such cases.
The court remanded the case back to the circuit court to consider the reasonableness of the agreement.
Justice Brian Zahra dissented. He would have applied a different holding in Rory v Continental Ins Co. (2005) that an unambiguous contract must be enforced as written unless doing so would violate law or public policy – without regard to judicial perceptions of “reasonableness” or the purported adhesive nature of the contract.
The majority ruled the findings in Rory as dicta, or not essential to the case, because it dealt with the insurance industry.
“Today the court engages in a remarkable feat of result-oriented activism,” Zahra wrote. “Because I believe that we must follow our precedent unless we have good reason to overturn it, that we cannot avoid precedent by construing it as ‘dicta,’ that we must decide only the issues properly presented to us and not intervene in cases as advocates, and that our jurisprudence.”
Justice Noah Hood did not participate in the case because he was not on the bench.
Gongwer?News Service
Adhesive boilerplate employment agreements that shorten a limitations period must be examined for reasonableness, the Supreme Court ruled Thursday in an opinion that overruled previous decisions.
In Rayford v. American House Roseville I, LLC (MSC Docket No. 163989) the court addressed whether an employer can contractually shorten the three-year statute of limitations applicable to civil rights claims to 180 days through a boilerplate employment agreement.
Justice Elizabeth Welch wrote the majority opinion, which was signed by Chief Justice Megan Cavanagh, Justice Kyra Harris Bolden, Justice Kimberly Thomas and Justice Richard Bernstein. Justice Brian Zahra dissented.
Although generally allowed, the agreement in this case was a non-negotiated boilerplate agreement, which the court said is an adhesion contract between an employer and an employee.
“We hold that an adhesive boilerplate employment agreement that shortens a limitations period must be examined for reasonableness,” the majority opinion said. “Additionally, these agreements are subject to traditional contract defenses, including unconscionability, and, as adhesion contracts, may be procedurally and substantively unconscionable.”
The majority overruled two previous Court of Appeals decisions in its decision: Clark v. Daimler Chrysler Corp. (2005), which extended a Supreme Court decision to employment agreements, and Timko v. Oakwood Custom Coating (2001), which held that a contractually shortened limitations period of 180 days in an employment agreement was not inherently unreasonable, reaching this result without conducting a particularized reasonableness analysis under Herweyer.
Those decisions being overruled means the Supreme Court precedent set forth in Camelot Excavating Co, Inc v. St Paul Fire & Marine Ins Co. (1981), and Herweyer v. Clark Hwy Servs, Inc. (1997), provides the correct framework for reviewing contractually shortened limitations periods contained in boilerplate employment agreements, the court ruled.
Camelot held that a court must review contractually shortened limitations periods in the nonadhesive, nonemployment context for reasonableness. Herweyer then extended that analysis to shortened limitations periods in employment agreements and implied that a period of six months was not reasonable, noting the inherently inequitable difference in bargaining power between an employer and employee and calling for “close judicial scrutiny” in such cases.
The court remanded the case back to the circuit court to consider the reasonableness of the agreement.
Justice Brian Zahra dissented. He would have applied a different holding in Rory v Continental Ins Co. (2005) that an unambiguous contract must be enforced as written unless doing so would violate law or public policy – without regard to judicial perceptions of “reasonableness” or the purported adhesive nature of the contract.
The majority ruled the findings in Rory as dicta, or not essential to the case, because it dealt with the insurance industry.
“Today the court engages in a remarkable feat of result-oriented activism,” Zahra wrote. “Because I believe that we must follow our precedent unless we have good reason to overturn it, that we cannot avoid precedent by construing it as ‘dicta,’ that we must decide only the issues properly presented to us and not intervene in cases as advocates, and that our jurisprudence.”
Justice Noah Hood did not participate in the case because he was not on the bench.
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